Protecting the core assets of your Business- Dealing with inter company arrangements under the PPSA

With the introduction of the Personal Property Securities Act 2009 (Cth) (“PPSA”) in late January this year, many businesses have been focusing on protecting their security interests in their dealings with their customers when supplying goods on a retention of title basis, on consignment or under certain hire or lease arrangements. Under the PPSA, arrangements of this kind need to be registered on the PPS Register to ensure that the assets that are the subject of the arrangements are protected in the event of the insolvency of the customer.

Owners of businesses should also consider the impact of the PPSA in a number of other important areas of their business and review whether the necessary steps have been taken to properly secure themselves in accordance with the new laws that now apply. Some of these areas include:

Inter Company Loans Arrangements If a business has obtained funds to support its on-going trading activities from another entity in its group (or from family or other “friendly” lenders) over and above its usual bank facilities, business owners need to ensure that:

  1. the loan arrangements have been properly documented,
  2. a “security agreement” in accordance with the terms of the PPSA has been created and
  3. the security interest of the lender has been registered on the PPS Register. This registration will help to secure the loan by at least establishing its priority behind bank financiers in the event of the insolvency of the business trading entity. If the security interest in respect of the loan is not registered the lender will be an unsecured creditor in the event of the insolvency of the borrower. The position is the same if the borrower is an individual and the individual becomes a bankrupt.

Inter Company Lease or License arrangements

If a business has arranged its affairs so that one entity in the group “owns” certain key assets (such as intellectual property or plant and equipment) that it leases or licenses to another entity in the group, the security interest of the owner will need to be registered on the PPS Register against the operating entity.

If the security interests are not registered, the interest of the owner of the assets will not be protected on the insolvency of the operating entity that has been granted the lease or licence. If the operating entity is insolvent, and if the "owner" of the assets has not registered, that owner will lose its rights to the assets and will be an unsecured creditor of the operating entity. This is because the PPSA treats the ownership rights of lessors and licensors as a mere security interest. Because of this, the owner’s interests will also be postponed to the rights of a third party that has registered an interest in the relevant assets of the operating entity (usually the bank that has financed the business of the operating entity). In that case, the bank will be able to exercise its rights to seize and sell the leased or licensed assets and to apply the proceeds in reduction of its debt. Registration, on the other hand, will enable the “owner” to rank ahead of any claim of the bank if there is sale of an asset where title is reserved until payment if full, or an enabling loan is made to acquire a new asset and the loan is used to acquire the asset or there is a PPS lease in respect of goods or a motor vehicle. The PSSA treats these types of transactions as purchase money security interests (PMSIs). PMSI’s are given a super priority, which means they rank ahead of an earlier registered general security interest holder (for example a bank that holds a debenture charge over all the assets of a company).

So assuming that Entity 1 (which is the owner that may be a company or trust) owns certain plant and equipment which it then leases to Entity 2 (which is the operating entity that deals with the public and hires or leases the plant and equipment to its customers), then the arrangement between Entity 1 and Entity 2 will need to be properly documented and a security agreement created. Entity 1 will need to register its security interest in the plant and equipment on the PPS Register to ensure that its interests are protected in the event of the insolvency of Entity 2.

Bank Covenants and Negative Pledges

Assuming that the operating entity’s activities are financed by a bank, it will also be necessary to check that the registration of any new security interests do not breach any covenants or negative pledges that may have been given to its bankers. Under the terms of bank’s financing facilities it is likely that it will be necessary to get their written consent to the raising of further finance and also to the registration of any new security interest on the PPS Register- otherwise the business may be in breach of its financing arrangements (and if it chose to do so, the bank could issue a default notice threatening to terminate the financing arrangements for breach of covenant or breach of the negative pledge).


The introduction of the PPSA has some unexpected implications for many traditional financing and security arrangements that did not need to be registered in the past. Accordingly, it is imperative that business owners act now to review their current inter company security arrangements to ensure that they have been properly documented and, where necessary, registered on the PPS Register. Failure to register an interest or to obtain the necessary consent of an interested party could put at risk the core assets of your business.

For contractual arrangements that were put in place before 30 January 2012, and which have not been varied since that date, there are some transitional provisions in the PPSA that allow enforcement during a transitional period expiring on 30 January 2014. A registration on the PPS Register that is made during that transitional period can preserve arrangements that were legally enforceable before 30 January 2012.

PS Law
Philip Sheezel

1. Under the PPSA certain lease or hire arrangements are termed “PPS Leases”. They include:

  • Ones that deal with personal property for a term of more than one year.
  • Ones that deal with personal property that may or must be described by serial number (such as those relating to motor vehicles or watercraft) for a term of 90 days or more and
  • Ones that deal with personal property for any length of time which secure payment or performance of an obligation.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We specifically exclude any legal liability for any incorrect or inaccurate information that is contained in the article.

This article may not be reproduced or copied without the express authorization of the author.

If you require any assistance to up-date your current legal customer documents or advice on any other commercial legal matters, contact Philip Sheezel at PS Law on 03 9503 0499 or email to discuss your specific needs and to obtain fee estimate on the work that you require to be undertaken.